Contract Size (Lot Size)
Definition
Contract size, often called lot size, defines how much of an underlying asset you are trading per unit. It determines how much each point, pip, or price movement is worth in real money. Contract size directly affects risk, margin usage, and position sizing, making broker contract specifications a core factor in broker comparison.
In Plain English
In plain terms, contract size tells you how big one unit of a trade really is. It converts price movement into profit or loss. If one point is worth £1 on one broker but £10 on another, the contract size is different — even if the market price looks the same on screen.
How It Works
- Each tradable instrument has a defined contract or lot size set by the broker.
- The contract size determines the monetary value of one point, pip, or tick.
- When you place a trade, you choose how many contracts, lots, or units to trade.
- Profit and loss are calculated as price movement multiplied by contract size.
- Margin requirements are based on the full contract value, not just the deposit.
- Larger contract sizes increase exposure and risk.
- Minimum and incremental sizes limit how precisely you can size positions.
- Contract sizes vary by asset class and broker.
Why This Matters for Traders
Contract size is one of the most common sources of unintended risk. Traders often focus on price movement while overlooking how much each movement is actually worth. A position that looks small can carry significant monetary risk if the contract size is large. Understanding contract size is essential for consistent risk management and avoiding oversized trades.
Common Misunderstandings
- One lot means the same thing everywhere: lot definitions vary by broker and asset.
- Small price movements always mean small risk: contract size determines impact.
- Leverage defines risk alone: contract size defines exposure before leverage.
- All brokers support flexible sizing: minimum sizes differ widely.
- Contract size only matters for large accounts: small accounts are often most affected.
How This Affects Broker Choice
Contract size is a key but often hidden broker differentiator. When comparing brokers, users should examine:
• Contract specifications and point/pip values.
• Minimum trade sizes and increments.
• Whether micro, mini, or fractional contracts are supported.
• How contract size interacts with margin and leverage.
• Transparency of contract details in the platform.
From a monetisation and comparison perspective, contract size explains why some brokers are unsuitable for smaller or risk-conscious traders, making it highly relevant to broker reviews and comparison tables.
Risks & Common Mistakes
• Trading minimum contract sizes that are too large for the account.
• Ignoring point or pip value when setting stops.
• Assuming two brokers offer equivalent exposure on the same instrument.
• Oversizing trades because margin allows it.
• Choosing brokers with opaque or poorly documented contract specs.
Risk note: incorrect understanding of contract size can lead to rapid losses, margin calls, and stop-outs, especially when combined with leverage.
Real-World Example
Broker A offers an index CFD where 1 contract equals £1 per point.
Broker B offers the same index where 1 contract equals £10 per point.
A 50-point move results in:
• £50 profit or loss on Broker A.
• £500 profit or loss on Broker B.
The price move is identical, but the risk is ten times higher due to contract size.
What to Check Before Trading
- What is the monetary value per point, pip, or tick?
- What is the minimum and incremental trade size?
- Are micro or fractional contracts available?
- How does contract size affect margin usage?
- Are contract specifications clearly documented?
- Does the platform show real-time £/pip or £/point values?
- Is contract size consistent across similar instruments?
Related Concepts
Position sizing depends directly on contract size and point value.
Margin requirements are based on full contract exposure.
Leverage amplifies the exposure created by contract size.
Stop-loss distance must be evaluated against contract size.
Contract size affects the real-world value of planned risk and reward.
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Risk Warning: This website does not provide financial, investment, or trading advice. All information is for educational purposes only. Trading and investing involve substantial risk of loss. You should carefully consider your financial situation and consult with qualified professionals before making any financial decisions.